Reply to: Can you keep money in a company?

[SoupDragon]

I would guess profit is only dividend payment from the stock your company buys - and capital appreciation too.

When I get an accountant, I'll be sure to ask

[Sockpuppet]

I've come to the end of my first financial year too. Surely you only pay CT once on the profit left over, not repeatedly into the next year if the profit remains in the company? Otherwise, I'd be CTd on the same sum two years running.

I would only expect to pay CT on any new fees coming in during the second year of trading and only pay tax on any withdrawals from the first year's profits.

Bingo.

Once again we come back to Profit != Cash In Bank.

Say it again. You pay CT on PROFIT. There are different tax years so with exception of stuff such as depreciation what happened last tax year has little to do with what goes on in this tax year.

[Denny]

Money left over is called "profit". You pay corporation tax on it annually. Not paying CT on it is illegal and you go to jail, but there's nothing to stop you leaving it in the company - else how do you get through periods of no work?

If you buy shares and make money, you can add any resultant income to your gross profits. However, Hector might then decide you are an investment company and tax you all your profits at a much higher rate.

I think you need to do some further reading...

I've come to the end of my first financial year too. Surely you only pay CT once on the profit left over, not repeatedly into the next year if the profit remains in the company? Otherwise, I'd be CTd on the same sum two years running.

I would only expect to pay CT on any new fees coming in during the second year of trading and only pay tax on any withdrawals from the first year's profits.

[malvolio]

Dear all

There are still compliant solutions out there for contractors working in the UK. If you are serious about looking for an advisor then please contact me by PM (chrism@foresightone.co.uk) and I would be happy to discuss various solutions based on your circumstances.

Terrible echo in here. Or is it Deja vu...?

[Foresight One]

Foresight One

Dear all

There are still compliant solutions out there for contractors working in the UK. If you are serious about looking for an advisor then please contact me by PM (chrism@foresightone.co.uk) and I would be happy to discuss various solutions based on your circumstances.

[shelby68]

company profits

I've already looked into this.

you can invest it from within the company but as has been pointed out you might then classify as an investment company to which different tax regs apply and as a company investment you loose your 8k plus CGT free tax allowance to you'd have to pay tax on any profit made, question you need to ask is do you think the profit will be worth loosing 8k tax free.

I've not really made my mind up yet if its worth it or not, although I suppose if you were thinking longer term 3 yrs plus the tapper relief might make it a bit more attractive, as always don't listen to me speak to an accountant thats what they get paid for.

[Hiram King Of Tyre]

oh....ok thanks

[ASB]

but if you use it to pay salary, you have already paid CT on it. You don't pay CT on salary. Does that mean youve lost 20%?

No. Because salary is a chargeable expense. Thus it will reduce the profit (or turn it into a loss) in year 2. If you end up in a loss the CT may be reclaimable, if not it should be able to be carried forward against future CT.

[Sockpuppet]

Not necessarily.

Ok, for any business other than one set up for the avoidance of taxes I'd say that was a fair assumption.

Of course if you are running a "i just lost my MSC" company then it may be.

[malvolio]

Yep. SJD have raised that one in the past as well. It is the only way you can get above 80% return on gross, provided you take not very much income in the interim.

The other snag is, as SJD themselves admit, that doing it more than once may well attract Hector's attentions, and you have to have his permission to wind up the company. So file in the interesting-but-probably-unworkable tray.

[marcosscriven]

You may be intersested in something I learnt recently (though given my recent posting experience, I am bracing myself for a beating since I am a 'newbie' and 'unprofessional')

If you keep money in your company for at least two years, and then wind it up, you can take out anything left in it as capital, rather than income. This gives you full taper relief, under something called 'ESC C16'

Check it out with your accountant, and take a look at this link:

http://www.google.co.uk/search?q=ESC...ient=firefox-a

Hope that helps

Marcos

[Hiram King Of Tyre]

profit != cash in bank or cash flow.

Not necessarily.

[Sockpuppet]

but if you use it to pay salary, you have already paid CT on it. You don't pay CT on salary. Does that mean youve lost 20%?

Yes, yes it does.

or...

You could think a bit more and find the concept of "financial year" more appealing. What you ex MSC/Umbrella chaps need to fathom is that profit != cash in bank or cash flow.

[Hiram King Of Tyre]

but if you use it to pay salary, you have already paid CT on it. You don't pay CT on salary. Does that mean youve lost 20%?

[VectraMan]

So what happens if at the end of the year, there is a surpless. You pay 20% CT on it. Can you then only pay is as a dividend and not salary (No CT on salary as it isn't profit)

If you have a surplus then you would have to pay CT on whatever the profit was for that year. You can use that money to pay yourself a salary (or other costs) for the next year, which would mean you'd make a loss on that second year and have no CT to pay (presumably you don't get it back?).